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The treasurer of Brandon Blue Sox is seeking a $37,000 loan for 180 days from the Brandon Credit Union. The stated interest rate is 10 percent and there is a 15 percent compensating balance requirement. The treasurer always keeps a minimum of $3,200 in the firm's chequing account. These funds could count toward meeting any compensating balance requirements. What is the annual rate of interest on this loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate of interest % The Reynolds Company buys from its suppliers on terms of 3/10, net 65. Reynolds has not been utilizing the discount offered and has been taking 77 days to pay its bills. The suppliers seem to accept this payment pattern, and Reynold's credit rating has not been hurt Mr. Duke, Reynolds Company's vice-president, has suggested that the company begin to take the discount offered. Mr. Duke proposes the company borrow from its bank at a stated rate of 14 percent. The bank requires a 10 percent compensating balance on these loans. Current account balances would not be available to meet any of this required compensating balance. a. Calculate the cost of not taking a cash discount. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Cost of not taking a cash discount % b. Calculate the annual rate of interest if the company borrows from the bank. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate of interest % c. Do you agree with Mr. Duke's proposal? Yes No Burt's Department Store needs $617,000 to take a cash discount of 2.50/10, net 90. A banker will loan the money for 80 days at an interest cost of $14,600. a. What is the annual rate on the bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate % b. How much would it cost (in percentage terms) if Burt's did not take the cash discount and paid the bill in 90 days instead of 10 days? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Cost of not taking a cash discount % c. Should Burt's borrow the money to take the discount? Yes No d. If the banker requires a 10 percent compensating balance, how much must Burt's borrow to end up with the $617,000? (Round the final answer to the nearest whole dollar.) Amount to be borrowed e-1. What would be the interest rate in part dif the interest charge for 80 days were $20,750? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate % e-2. Should Burt's borrow with the 10 percent compensating balance? (There are no funds to count against the compensating balance requirement.) O No Yes Neveready Flashlights Inc. needs $460,000 to take a cash discount of 2/10, net 70. A banker will loan the money for 60 days at an interest cost of $7,100. a. What is the annual rate on the bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate % b. How much would it cost (in percentage terms) If the firm did not take the cash discount, but paid the bill in 70 days instead of 10 days? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Cost of not taking a cash discount % c. Should the firm borrow the money to take the discount? No Yes d. If the banker requires a 13 percent compensating balance, how much must the firm borrow to end up with the $460,000? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Amount to be borrowed $ e-1. What would be the effective interest rate in part dif the Interest charge for 60 days were $10,100? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate % e-2. Should the firm borrow with the 18 percent compensating balance? (The firm has no funds to count against the compensating balance requirement.) Yes No
